I was offered a mobile home for free last week. Score, right? No, I turned it down. I could keep it in the park, but it needed more work than I was willing to do. It simply did not meet my investment criteria, because I would not be able to net a large enough spread on that mobile home in that community.
Cheap does not always end up being a great deal. You need to know when to invest and when to walk away from a potential investment opportunity. Since I just ran into this situation, I thought it fitting to write about what I consider before I decide which mobile home parks to invest in.
Location, location, location
Well, this isn’t a new concept for anyone in real estate. It is the same overall principle here, too. Obviously, proximity to public transportation, shopping and employment is a plus when you are considering a mobile home park in which to start buying mobile homes. However, I tend to look at mobile home park location a bit more on the micro scale than the macro scale. What do I mean by that? The same ZIP code, side of town or even neighborhood could have a mobile home park that I love investing in, right next door or across the street from one I would never, ever invest in. What I look at is the “curb appeal” of the park. Does it appear well-maintained? Does it have amenities that could draw in more prospects for my mobile homes? (That includes a pool, clubhouse, open space, RV parking, playground equipment, etc.) Does the park have a gated entrance or 24-7 security on patrol? If those things are in place, some parks are more desirable even though they may not be in really nice areas. As with traditional real estate, I still have to consider who will live there and what they will want or need. I make sure it will be appealing to the vast majority of the people coming into that area looking for housing.
The following factors will help me choose one park over another in a particular location. My decision to invest there is not based on location alone.
Mobile home park policies
Some mobile home parks refuse to work with investors, whereas others will always be open and willing to work with us. That is an obstacle we cannot overcome until the park manager moves on or the mobile home park has new ownership. Age restrictions, pet policies, parking rules, etc., can restrict the range of prospects that you would attract to buy or rent your mobile home. There are quite a few mobile home parks that require the older mobile homes in their park to be re-sided and have updated finishes or else they have to be removed from the park. The affordability of one park over another will impact my decision to invest there, too. In some cases, these limitations will make the mobile homes in that park unattractive to me due to longer days on market or higher rehab costs than neighboring parks. Obviously, I am looking for the easiest person to work with and parks where I can get my cash out quickly, maximizing my profit and minimizing my initial investment.
Believe it or not, there are a lot of mobile home parks that have amazing reputations. (Yes, those do exist!) However, there are some mobile home parks that have bad reputations for a reason. In most cases, it is due to poor property management of the park. Keep in mind that the park manager can influence who moves in, how the park is maintained (within reason) and park rule enforcement. From time to time, the bad reputation is due to the park owners. They may have decided to limit funds to maintain and improve the park. The ownership might be mismanaging the park, restricting the funds available for improvements or repairs. The park owners might have a tendency to increase lot rent per year by insane increments or charge hefty penalty fees for park rule violations. The park owners might have very strict rules regarding their tenant screening policies or the enforcement of lot tidiness.
Park size and unit mix
I formerly had a looser approach to park size and unit mix. However, as I have “matured” in this industry, I have narrowed my focus. Therefore, I now invest in parks that have a minimum of 80 mobile home lots. I prefer larger parks because they are going to draw more potential buyers or renters and tend to shorten my days on market and maximize my returns. Why? Well, usually because the park will market its community more aggressively. Often, the park will do some sort of reputation management, too. Additionally, I have more mobile homes to choose from in the park and more comparable properties to help me gauge my fair market value or market rent. I prefer parks that have a mix of single-wides and double-wides. I like to see a mix of older and newer mobile homes, too. It tends to help keep market values in check and draw a more diverse mix of potential prospects for my units. I have even found that quite a few of my buyers will request to trade in the two-bedroom single-wide they bought from me for a three-bedroom double-wide. If I like working with those individuals, I can help them stay within the same community and get into a larger home – while also increasing my rate of return on those mobile homes as I recycle them through my portfolio.
These four factors should be considered before you buy a mobile home in any mobile home park. I have found that these factors will readily impact my net profit, so I am pretty particular with how far I will stray from my investment criteria. My objective – like that of any other real estate investor – is to maximize my net profit. I have found that certain mobile home parks are golden geese, while others turn out to be albatross. I hope you can take this information, apply it in your market and get your mobile home investing business off the ground.